By Isabel Versiani and Gabriel Ponte
BRASILIA (Reuters) – The Brazilian government sent its proposal to reform the Income Tax (IR) on Friday to the Chamber of Deputies, providing for a reduction in the tax rate on companies, an increase in the exemption limit for individuals and introducing taxation on dividends paid to investors, at a 20% rate.
The economic team also proposes to change the treatment for investments in fixed and variable income, with the fixing of a 15% single income tax on earnings. This will replace the current model in which, with fixed income taxation of 22.5% on investments of up to 180 days, the rate gradually falling until reaching 15% for investments over 720 days.
When presenting the projects to the president of the Chamber, Arthur Lira (PP-RN), the Minister of Economy, Paulo Guedes, highlighted that the taxation of dividends will open space to reduce the income tax on other sources.
“These taxes that go up there will allow for a reduction in taxes for companies, on the one hand, and on the other, for salaried workers,” he said.
The bill provides for a reduction in the rate on corporate profits, from the current 15% to 12.5% in 2022 and to 10% as of 2023. But the additional 10% that focuses on profits above 20 thousand reais per month would be sustained.
Under the proposal, payments of bonuses and profit sharing with shares to partners and directors made can no longer be deducted as operating expenses. And the possibility of deducting interest on equity will be prohibited.
“With a much more evolved credit market and lower interest rates, it is no longer necessary to provide benefits for the entrepreneur to invest their money in the company itself”, says the introductory text of the Ministry of Economy.
The government also wants to do away with the alternative of annual calculation of results. As a result, companies must calculate their IRPJ and Social Contribution on Net Income on a quarterly basis, with permission to offset 100% of the loss for a quarter in the following periods.
As already anticipated by Guedes, the text proposes to tax dividends distributed to individuals. The rate will be 20%, with exemption for amounts up to 20 thousand reais received per month.
The secretary of the Federal Revenue, José Tostes Neto, said that the measure corrects the different treatment given to this income, compared to income from work.
“The non-distribution of profits has created distortions over time,” said Neto.
In a nod to the middle class a year before the elections, the government proposed raising the exemption limit for individual income tax, from 1903.98 reais to 2,500 reais, with the readjustment of the upper ranges of the tax table.
Under the new framework, 16.3 million Brazilians will be exempt from income tax, compared to the current 10.7 million, with a 31% increase in the exemption range. Ministry data show that 50% of the current taxpayers will not pay income tax.
According to Guedes, President Jair Bolsonaro wanted the exemption range to be raised to 3,000 reais, but there was no fiscal space to reach that amount.
“There is not the slightest risk of unbalancing the finances,” stated the minister.
For real estate investment funds, the government wants to end the exemption on income paid to individuals in the case of FII with shares traded on the stock exchange from 2022.
In the case of open funds, the government proposes the end of the “come-quota” system in May. Exclusive closed funds (multimarkets) will pay the same taxation as the others.
(Additional reporting by Ricardo Brito)
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